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Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

 

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PROPOSAL FOR THE ADJUSTMENT OF
FINANCIAL COVENANT

4^th ISSUANCE, BEING THE 3^rd PUBLIC,
OF BRASIL TELECOM S.A.’s DEBENTURES.

“The Debentures have not been, and will not be, registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. ”

January 2006
Financial and Administrative VP and IRO

Financial Operations Director/Capital Markets and Assets Management

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		Brasil Telecom

• 3rd largest Brazilian wireline company
• Dominant market position in its concession area (Region II)
• 9.5 million lines in service (LIS) representing a penetration rate of 23% in its concession area
• Metropolitan access networks in São Paulo, Rio de Janeiro and Belo Horizonte
• Offers integrated services via a system of 2 rings of fiber-optic sub- sea cables connecting Brazil, United States, Venezuela and Bermudas
	24% of the Brazilian population (42 million inhabitants) and 26% of the country ’s GDP (R$351 billion)

KEY INDICATORS OF THE 3Q05 (9 MONTHS)

Market Cap (09/30/2005)	R$ 7.8 billion
Revenues	R$ 7.5 billion
EBITDA	R$ 2.4 billion
Net Debt	R$ 2.6 billion

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		Convergence and Integration Telecom

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		Brasil Telecom's Strengths

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		Brasil Telecom in 2006

OPERATING REVENUES

• Slight decrease in wireline revenues and growth in corporate data, IP, and mobile segments

OPERATIONAL COSTS

• Mitigate cost pressures

EBITDA

• EBITDA margin expected to be stable or slightly lower excluding provisions to be booked on an extraordinary basis

CAPITAL STRUCTURE

• Optimization of cost of capital (WACC) via slight increase of debt

• Maintenance of conservative liquidity level

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		Fixed Voice Strategy

 

Mitigate wireline erosion		Low income offers
		Second line offer
		More aggressive retention strategy
		Pro-active retention - churn forecast model
Mitigate traffic erosion		Franchising plans
		Flat Fee offers
		Traffic incentives
		Cordless Project
Defend high-end customers		Clustered bundled offers
Defend/grow corporate customers		Win-back initiatives
		Minute Plans
Attack and consolidate LD market		Traffic campaigns

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		BrT GSM – Focus on High Value Customers

• After 1 year of operations, BrT GSM reached a market share of 7%, surpassing international benchmarks

• Above industry post-paid proportion in the client mix (27% in 3Q05)

• Launch of convergent products and offers focused on corporate customers

2006 GUIDANCE

• Strong growth focused on high-end customers • Significant revenue growth

   • Increase in client base (3 million by the end of 2006) generating required scale for business

   • Post-paid accesses representing 27% of the client base

   • Decrease in SAC (from R$220 in 2005 to R$200 in 2006)

      • Conservative SAC accounting via non-deferral

   • Expected ARPU of R$28

   • EBITDA Break-even in 1Q07

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		Corporate Data and IP Segments

IP SEGMENT

• Growth in ADSL subscribers between 30%-40%

• Growth in broadband Internet access

• Growth in DSL ARPU

• Significant IP revenue growth

• Launch of new products: VOIPFONE

• Maximize synergies among ISPs (iG, iBest, and BrTurbo)

CORPORATE DATA SEGMENT

• Growth coming mainly from IP VPN and dedicated IP

• Retention of corporate and government clients and growth in SMEs

• Segmented offers and continued shift towards advanced services minimizing price pressures

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		4Q05 Provisions

• Provisions, on an extraordinary basis, to be booked in the amount of R$622MM, referring to the following items (Material Fact of 01/05/2006) :

   • Legal contingencies – R$198MM

   • Adjustments in the actuarial calculation of retirement plan obligations of Fundação BrTPrev – R$171MM

   • Write-off of tax credits (ICMS) – R$127MM

   • Co-billing – R$74MM

   • Alteration of the calculation basis of FUST – R$52MM

• Reevaluation of contingencies/provisions to better reflect the current conditions of Brasil Telecom S.A.

• Commitment to keep high standards of transparency and corporate governance, as well as to continue to value its investors, clients, employees and partners

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		Impacts and Perspectives

• Financial covenant related to EBITDA affected as of the 4^th Quarter/2005 until the 3^rd Quarter/2006

• Notwithstanding the adjustment of the financial covenant, Brasil Telecom’s ability to comply with its financial obligationsremains unaffected, as the company’s cash position is not impacted in the short-term

• Brasil Telecom’s credit risk and financial health remains unchanged

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		Proposal for the Adjustment of Financial Covenants

Adjustment of the ratio between EBITDA and Financial Expenses (*):

FROM : equal or higher than 2.25

TO: equal or higher than (i) 1.50 (as of the fourth quarter of 2005 until and including the third quarter of 2006); and (ii) 2.00 (as of the fourth quarter of 2006 until the maturity term of the debentures)

(*) Section 4.19 line “e”, (i) of the Indenture – Escritura Pública de Debêntures related to the Issuance of Debentures

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